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Obsession

A new note from Citigroup attacks “one of the most unassailable assumptions in global energy”—the forecast that China’s coal consumption will grow wantonly over the next two decades. By extension, it challenges apocalyptic climate change forecasts.

China has accounted for 82% of the increase in global coal consumption since 2011, according to the US Energy Information Administration (EIA). But the lead writers of Citi’s new note, Anthony Yuen and Ed Morse, argue that the trajectory is likely to flatten before 2020, or up to 15 years earlier than usually supposed.

They say that Beijing’s plans to move its economy away from manufacturing, settle for more modest long-term economic growth and cut air pollution will make demand for electricity—and thus for coal power—grow much more slowly than mainstream models assume. At the same time, the government is aggressively pushing non-coal resources including solar, nuclear and natural gas. If this growth in non-coal power generation outstrips the rise in demand for electricity, you get “peak coal” prior to 2020. Citi’s analysts call that scenario (the solid blue line below) a likely one.

By contrast with Citi’s forecast, the EIA predicts a peak in Chinese coal consumption around 2035 (see chart below).

For Citi’s clients, the note’s implication is that they should factor lower Chinese coal demand into their calculations when investing in coal companies. But another effect is that, if the forecast is right, China’s carbon-dioxide (CO2) emissions will grow more slowly.

The International Energy Agency business-as-usual scenario is that Chinese coal plants will emit 4.95 billion tonnes (5.46 billion tons) of CO2 in 2020, versus 3.86 billion tonnes now. That assumes 8% annual GDP growth. But if China grows instead at 7.3%—which Citi argues is more likely—CO2 emissions would reach only 4.02 billion tonnes in 2020. If growth is a bit slower still—an average of 6.6% a year during the period, not a far-fetched idea—emissions would be 3.82 billion tonnes, just below what they are now (the “Transition” scenario in the graph below).

“The popular press loves to tout China’s ‘insatiable appetite for coal,’ but the reality is China’s hunger for energy of any type. In fact no country would like to reduce China’s coal demand more than China itself,” Yuen and Morse write.